LAW 360

Exide Investors Get Another Class Certification In Enviro Suit

By Kali Hays

Law360, New York (December 21, 2015, 3:33 PM ET) — A California federal judge has certified an additional class of investors accusing bankrupt automotive and industrial battery maker Exide Technologies’ executives of covering up the company’s failure to comply with environmental regulations, finding claims concerning the company’s control over the executives are common among class members.
U.S. District Judge Stephen V. Wilson on Thursday certified a class of noteholders pursuing Securities Exchange Act of 1934 violations against Exide, after certifying a liability-only stock class in July, agreeing that the claims present a unified question of the “power and control” exerted by the company over executives that allegedly made numerous misleading statements in the run-up to a 2013 bankruptcy.

“The ‘controlling person’ issue is intensely factual, but it constitutes a common question for all class members because if plaintiffs are able to prove a primary violation, the controlling person inquiry would not be specific to individual class members,” Judge Wilson said.

In addition, Judge Wilson ruled that the securities notes class “does not need to prove reliance” on general market statements, as Exide has held, because noteholders included in the class all purchased their notes before the company issued an earnings statement that covered at least one year, according to the order.

The judge also appointed Steamfitters Fund to act as the representative for the securities note class and Federman & Sherwood as class counsel, both of which are in the same positions with the liability class.

Lead plaintiff David M. Loritz pushed for certification of the class in early November, rejecting Exide’s attacks on the merits of proposed calculations for investors’ damages.

Loritz has argued investors have “empirical evidence” supporting a cause and effect relationship between certain 2013 disclosures by Exide and the damages suffered by noteholders and that the damages method they have developed is capable of being applied to the entire proposed class.

Exide defendants have responded by calling the investors’ purported evidence “unscientific and unreliable” in an October opposition to class certification, saying their expert relied on “unsupported methodologies” to reach the cause and effect conclusions.

The investors initially filed the suit in April 2013, accusing Exide and its top executives of failing to disclose that a plant located in Vernon, California, was releasing high levels of arsenic, lead and other hazardous materials, leading to state regulators to suspend operations at the plant and calling for environmental remediation. One regulator eventually filed suit over the environmental damages and is seeking $40 million in penalties against the company.

Instead of informing investors of environmental compliance issues, the company touted its compliance with environmental standards, including specifically stating that the Vernon plant met air quality standards, according to the investors.

The case was consolidated with two similar cases in July 2013, and Exide was voluntarily dropped as a defendant after entering Chapter 11 bankruptcy in the wake of the plant shutdown. The individual defendants subsequently won their motion to dismiss the suit in December, without prejudice, and a second amended complaint followed in January.

Exide denied the investors’ amended claims in May, arguing it made “regular disclosures” to its investors and that the proposed class is too broad because it includes noteholders that purchased shares in a private offering.

Counsel for plaintiffs and the Exide defendants could not be reached Monday for comment.

The investors are represented by William B. Federman and A. Brooke Murphy of Federman & Sherwood and Robert S. Green of Green & Noblin PC.